Corporate Governance and Performance in the Wake of the Financial Crisis: Evidence from US Commercial Banks

Corporate Governance and Performance in the Wake of the Financial Crisis: Evidence from US... ABSTRACT Manuscript Type: Empirical Research Question/Issue: Does corporate governance explain US bank performance during the period leading up to the financial crisis? We adopt the factor structure by Larcker, Richardson, and Tuna (2007) to measure multiple dimensions of corporate governance for 236 public commercial banks. Research Findings/Insights: Findings reveal corporate governance factors explain financial performance better than loan quality. We find strong support for a negative association between leverage and both financial performance and loan quality. CEO duality is negatively associated with financial performance. The extent of executive incentive pay is positively associated with financial performance but exhibits a negative association with loan quality in the long‐run. We find a concave relationship between financial performance and both board size and average director age. We provide weak evidence of an association of anti‐takeover devices, board meeting frequency, and affiliated nature of committees with financial performance. Theoretical/Academic Implications: We apply agency theory to the banking industry and expect that the governance‐performance linkage might differ due to the unique regulatory and business environment. Results extend Larcker et al. (2007), especially regarding the concave relationship between board size and performance, and the role of leverage. Given the lack of support for our agency theory predictions, we suggest that alternative theories are needed to understand the performance implications of corporate governance at banks. Practitioner/Policy Implications: We offer contributions to regulators, especially for ongoing financial reforms of capital requirements and executive compensation. Specifically, we show a consistent negative association between leverage and performance, which supports the current debate on Tier I capital limits for banks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Wiley

Corporate Governance and Performance in the Wake of the Financial Crisis: Evidence from US Commercial Banks

Loading next page...
 
/lp/wiley/corporate-governance-and-performance-in-the-wake-of-the-financial-UeVOk9hCCx
Publisher
Wiley
Copyright
© 2011 Blackwell Publishing Ltd
ISSN
0964-8410
eISSN
1467-8683
D.O.I.
10.1111/j.1467-8683.2011.00882.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Manuscript Type: Empirical Research Question/Issue: Does corporate governance explain US bank performance during the period leading up to the financial crisis? We adopt the factor structure by Larcker, Richardson, and Tuna (2007) to measure multiple dimensions of corporate governance for 236 public commercial banks. Research Findings/Insights: Findings reveal corporate governance factors explain financial performance better than loan quality. We find strong support for a negative association between leverage and both financial performance and loan quality. CEO duality is negatively associated with financial performance. The extent of executive incentive pay is positively associated with financial performance but exhibits a negative association with loan quality in the long‐run. We find a concave relationship between financial performance and both board size and average director age. We provide weak evidence of an association of anti‐takeover devices, board meeting frequency, and affiliated nature of committees with financial performance. Theoretical/Academic Implications: We apply agency theory to the banking industry and expect that the governance‐performance linkage might differ due to the unique regulatory and business environment. Results extend Larcker et al. (2007), especially regarding the concave relationship between board size and performance, and the role of leverage. Given the lack of support for our agency theory predictions, we suggest that alternative theories are needed to understand the performance implications of corporate governance at banks. Practitioner/Policy Implications: We offer contributions to regulators, especially for ongoing financial reforms of capital requirements and executive compensation. Specifically, we show a consistent negative association between leverage and performance, which supports the current debate on Tier I capital limits for banks.

Journal

Corporate GovernanceWiley

Published: Sep 1, 2011

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off